Japan - June 2020

S P OT L I G H T
Savills Research

ShinagawaRetail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

Shinagawa

Tokyo’s newest gateway has
long-term potential

23W Average Rent (RHS)
5,500

25,0004,500

20,0004,000
15,0003,500

10,000
5,000

3,000

0

2,500

Source Ministry of Internal Affairs, Savills Research and Consultancy

Graph 2: Multi-family Rents Amongst the Southern Wards, Q1/2014 to Q1/2020
C5W Average
Setagaya

23W Average
Ota

18W Average
MeguroShinagawa

17,00016,00015,00014,00013,00012,00011,000

Q1

Q3

2019

Q4

Q1

Q2

Q3

2018

Q4

Q1

Q2

Q3

2017

Q4

Q1

Q2

Q3

2016

Q4

Q1

Q2

Q3

2015

Q4

Q1

2014

Q2

10,000Q3• Looking ahead, Shinagawa
Station will host the Tokyo
platform of the first Maglev line,
which is set to open in 2027 andwill reduce railway travel timeto Nagoya by 60%. Leading up
to this, the station is set to see amajor expansion accompaniedby new developments in thesurrounding area.

JPY / Sq m (RHS)

5,000

Q4

• Increasing availability in the
C5W resulting from COVID-19
could lead to an early rise invacancy in Shinagawa Ward’s
peripheral neighbourhoods,
such as Tennozu Isle andShinagawa Seaside, as
tenants take advantage of theopportunity to secure moreconvenient office space in thecity centre.

C5W

30,000

Q1• Although office rents havegrown substantially over the
past few years, the market still
offers a nearly 40% discount in
Grade A office space over the
C5W. That said, pricing varies
significantly by neighbourhood.

Southern Wards
35,000AVERAGE RENT (JPY / SQ M / MONTH)• Housing starts data indicatesthat the market has been
undersupplied in terms of
multifamily residential units –suggesting that rents could seesome additional upside.

Graph 1: 20-29 Year-Old Net Migration by Ward, 2014 to 2018

Q2

• Despite having some of thehighest rents amongst Tokyo’s
18 outer wards (18W), theShinagawa Ward continues
to attract a large number ofresidents in their 20s, with thenumber picking up over the past
two years.

PEOPLE• Being located just outsideof Tokyo’s central five wards(C5W), and with a wellestablished business district,Shinagawa real estate is likely
the safest bet in Greater Tokyo
outside of the C5W (the Tokyo
Periphery).

JPY / TSUBO / MONTH

Summaryand beyond. Major development projects are
already underway around the C5W in areas suchas Toranomon and Shibuya. Along with thesedevelopments, Shinagawa Station will undergo
massive redevelopment that will prime it, as wellas the Shinagawa Ward just to the south, for aboom over the course of the decade.
The area was historically the last (or first)
lodging stop along the old Tokaido Routebetween Kyoto, then the seat of the Emperor,
and Nihonbashi in Edo (Tokyo). The district
retains some of this character as it is stillreported to have the highest concentration of
hotel accommodations in Tokyo. More recently,

INTRODUCTION
Although Japan has managed to contain the
COVID-19 outbreak relatively well thus far, theimpacts of the global pandemic will certainly
put a damper on Japan’s economy and byextension the broader real estate market. As
of April 2020, the IMF has forecasted thatJapan’s economy will contract by 4.8% in 2020.
To make matters worse, the Tokyo Olympics –which are now slated for July 2021 – could face
an outright cancellation.
Notwithstanding the near-term impactsof COVID-19, Tokyo will continue to see
significant investment into the early 2020s

2020

Source Savills Research and Consultancy

savills.co.jp/research

2

Shinagawa

Shinagawa has developed into an industrial
district and, subsequently, a business centre andresidential hub, with the area’s connection to
the Shinkansen line and the redevelopment of
the national railway’s marshalling yard in 2003
being major catalysts for this trend.
The area is now in the midst of a new
redevelopment phase meant to transform the
Shinagawa district into a global transportation
and business hub. A major milestone ofthis project has just been reached with the
opening of the Takanawa Gateway Station on
the Yamanote Line in March 2020. Moving
forward, the area is set to see a number of
mixed-use developments coming online in thesurrounding area, culminating in the openingof the Tokyo platform of the Chuo Shinkansen(Maglev line) at Shinagawa Station in 2027.

Shinagawa’s convenience combinedwith its affordability compared toTokyo’s central five wards havemade it an attractive alternative
for residents and corporate tenants
alike, particularly in the latter stagesof this upswing. Although thesubmarket might experience somevolatility in the near-term as a resultof COVID-19, Shinagawa’s prospects
are positive on a long-term basis.

C6W
Given that it is essentially an extension of
the C5W, Shinagawa is likely the safest bet

Map 1: Shinagawa Demographics by Neighbourhood
Population By Neighbourhood And Local Railyways As Of June 2020
Total Pop (6/2020)
0%Railway Lines
JR Keihin Tohoku

11,889MeguroJR Yamanote

Takanawa
Gateway
GotandaJR Yokosuka
RinkaiToei/Tokyo Metro

Shinagawa

Keikyu Main Line
Toei Asakusa
Tokyu Oimachi
Tokyu Ikegami
Tokyu Meguro
Metro Namboku
Tokyo Monorail

Shinagawa Seaside

Population Growth Since 2015
Pop Growth Since 2015

Takanawa
Gateway

MeguroGotanda

-100%

300%

ShinagawaOsaki

Oimachi

Shinagawa Seaside

Source Shinagawa City, Statistics Bureau of Japan, Savills Research and Consultancy

3amongst the markets surveyed in our reports
covering the Tokyo Periphery, though upside
potential may be comparatively limited asa result. Indeed, the ward has already beensomething of a popular target amongst
overseas investors given that attractive deals
in Tokyo’s top submarkets have been few andfar between in recent years.
Still, there are a few key differences with thecentral wards. For example, unlike the nearby
wards of the C5W, Shinagawa has attracted alarge number of young residents. Rents in the
C5W are often well out of reach for the average
person and this is particularly true for those in
their 20s, Tokyo’s largest group of migrants.
In general, many have looked to peripheral
wards in the South and West as a convenient
alternative. It is worth noting, however, that
Shinagawa is significantly more expensive thanthese other wards - especially nearby Ota andSetagaya - that have been magnets for theseyoung residents (Graphs 1 & 2).
It may be the case that the ward is popularamongst new arrivals with higher incomes,
possibly in the IT and software sectors.
Indeed, the area has been a magnet for foreign
IT giants in particular: Microsoft Japan’sheadquarters is located near Shinagawa Station
and Amazon Japan’s headquarters as well as
AWS’s Japan headquarters are both locatednear Meguro Station. Both of these areas areon the border or just outside of Shinagawa
Ward, namely in Meguro and Minato, which
tend to be more expensive than Shinagawa.
Recent demographic data appears to lend somecredence to this argument, as neighbourhoods
near Meguro and Gotanda stations, as well
as areas to the southeast with good access to
Shinagawa Station, have seen marked increases
in their populations over the past five years(Map 1).

Shinagawa

GRAPH 3: 20-29 Year-Old Net Migration for Shinagawa Ward vs Completion ofMultifamily Units, 2014 to 2019
For-Lease Unit Completions (LHS)
20-29 Year-Old Net Migration (LHS)
Unit Deficit (Net Migration Less Unit Completions) - (RHS)

3,000

5,000

2,500

4,000

2,000

3,000

1,500

2,000

1,000

1,000

500

0

UNIT DEFICITPEOPLE / UNITS

6,000

0
2014

2015

2016

2017

2018

2019

Source Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), Savills Research and Consultancy
Note: Unit completions are estimates based on housing starts disclosed by MLIT.

MAP 2: Shinagawa Area Office Submarkets (Grade A), Q1/2020

Avg. JPY/Tsubo/Month
15,00037,000Shinagawa Station
Meguro Station
OdaibaOsaki Station

Tennozu Isle

Shinagawa Seaside

Oimachi Station

Source Savills Research and Consultancy
Note: Highlighted areas above reflect the “Cho” (neighbourhoods) containing Grade A
offices in - and near the border of - the Shinagawa Ward.

savills.co.jp/research

4

The ward has in fact seen a notable uptick
in net migration over the past two years. Large
office developments proceeding around Shibuya
Station and additional corporate relocations
to the Shinagawa office market may be partly
responsible for this increase. As in the Tokyo
23W at large, the supply-demand balance ofmultifamily residential units appears to befavourable for landlords. Graph 3 compares
housing starts data and the net migration ofresidents in the 20-29 age bracket over the
past six years. On average over this period,
migrants in this age bracket have exceeded new
multi-family units coming online by around2,000 each year. Given that residents in their
20s are unlikely to purchase condominiums in
the ward, it appears that new demand for units
is outpacing new supply. As such, there may still
be room for rental growth in the submarket,
assuming that migration does not grind to ahalt.
A TALE OF TWO SHINAGAWAS
Despite its name, Shinagawa Station is notin fact located in the Shinagawa Ward, butjust a stone’s throw to the north in the Konan
neighbourhood of the Minato Ward. Evenso, the name “Shinagawa” itself is often used
to refer to the business district surrounding
the station. Due to its location in the Minato
Ward and convenient access, this area tends
to be much pricier than the Shinagawa
Ward proper, especially compared to nearby
Higashi Shinagawa, which includes the
Tennozu Isle and Shinagawa Seaside officesubmarkets (Map 2).
Shinagawa Station is a major railway hub in
the Takanawa and Konan districts of Minato,
operated by East Japan Railway Company (JREast), Central Japan Railway Company, and theprivate railway operator Keikyu. Among thelargest JR Stations in the region, Shinagawa
Station sees approximately 400,000 passengers
board or disembark from the station on average
every day (Graph 4). The Tokaido Shinkansen
and other trains to the Miura Peninsula, Izu
Peninsula, and the Tokai region pass throughhere, connecting with Nagoya and Osaka.
Shinagawa is not served by the Tokyo subway
network, though it is connected to the Toei
Asakusa Line via Keikyu through services.
Haneda International Airport, the busiest
airport in the country, is also accessible inunder 20 minutes.
With excellent transport access to otherparts of the Tokyo Metropolitan area, as well as
serving as a gateway to Tokyo from other partsof the country via the Tokaido Shinkansen and
Haneda Airport, all the while being affordable,
the Shinagawa business district is home to anumber of major corporations. Electronics
and IT companies have a particularly strong
presence in the area. The Japan headquarters of
Samsung and Microsoft for example, are both
located in Shinagawa Grand Central Tower,

Shinagawa

while Sony City, Sony’s global headquarters
complex, is also located just east of Shinagawa
Station. Further, Toyota Systems will base its
Tokyo head office in Shinagawa Heart, which
was completed in February 2019, along withmultiple companies related to Macnica Fuji
Electronics Holdings.
Looking ahead, the Linear Chuo Shinkansen

In anticipation of the Maglev line and inan effort to transform the area into a global
business hub, JR East has undertaken a massive
500 billion yen development project around
Shinagawa Station. Dubbed the Shinagawa
Development Project (phase I), this initiative is
set to bring online 260,000 tsubo of mixedused space by 2025. This development islikely to make 2025 a major office supply year,
comparable to the levels of 2020 and 2023 in
the C5W as a whole. If completed as planned,
the scale of the project would be larger thanthat of Roppongi Hills in terms of GFA. The
development will include four high-rise
towers around 170 metres tall, including an
office tower, two mixed-use hotel and office
towers, and an 860-unit apartment building.
The station itself will see refurbishment toaccommodate the Maglev line.
A major leg of the project was completed justto the north of Shinagawa Station in March
2020, with the opening of the new Takanawa
Gateway Station, adding a new stop along the
Yamanote Line – the first since 1971 – as well as
the Keihin-Tohoku Line, which extends northto Omiya, Saitama and south to Yokohama.
(Please refer to our Spotlight Report “Tokyo
Periphery and Rail Transit” for further analysis
on rail access and major transit hubs in theTokyo Periphery).

(Maglev line) Station is set to open in 2027,
which will reduce travel time from Tokyo
to Nagoya by 60%, from 100 minutes to 40
minutes. The extension of the line to Osaka isscheduled for completion in 2037, connecting
Tokyo and Osaka in around 70 minutes. This
will create a massive commuter belt extending
from East to West Japan.

GRAPH 4: Top 10 JR East (Tokyo Metropolitan Area) Stations by Average Daily
Footfall, FY2018

DAILY AVERAGE TRAVELLERS

900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0

Source JR East, Savills Research and Consultancy
Note: Passenger numbers above only represent riders using JR East.

MAP 3: Overview of Railway Access around Shinagawa

LEGENDto Omiya (Saitama)

to Omiya (Saitama)
JR EastIkebukuro

JR Yamanote Line

Ueno

JR Shonan-Shinjuku Line
JR Keihin-Tohoku Line

Shinjuku

JR Keiyo LineTokyo

to Western Tokyo

JR Saikyo Line
ShibuyaMeguroTokyu Meguro Line
Shinagawa

Osaki

Tokyu Oimachi Line

Hamamatsu-choTokyo Monorail

Shin-Kiba

Rinkai Line

Tennozu Isle
Oimachito Chiba

to Yokohama(Nagoya / Osaka)

Major stations in
Shinagawa Ward

Haneda Airport

Source Savills Research and Consultancy

5

Shinagawa

GRAPH 5: C5W Rents vs. Shinagawa Ward Office Rents, Q1/2020
C5W

Shinagawa

40,000JPY / TSUBO / MONTH

35,00030,000-15%-37%

25,00020,00015,00010,0005,000
0Grade A OfficeGrade B Office
Source Savills Research and Consultancy

GRAPH 6: Shinagawa Ward Grade A and Grade B Rents, 2011 to Q1/2020
Average Grade A Vacancy (LHS)
Average Grade A Rent

Average Grade B Vacancy (LHS)
Average Grade B Rent

26,000

2011

2012

2013

2014

2015

2016

2017

2018

Q1

Q1

Q3

Q3

10,000Q1

0%Q112,000Q3

2%

Q1

14,000Q3

4%

Q1

16,000Q3

6%

Q118,000Q38%Q320,000

Q1

10%

Q1

22,000

Q3

12%

Q3

24,000Q1

14%

JPY / TSUBO / MONTHVACANCY

16%

2019 20

Source Savills Research and Consultancy

GRAPH 7: Shinagawa Large-Scale Office Supply, 2018 to 2023
70
60

TSUBO GFA ('000)

50
40
30
20
10
0
2018

2019

2020

2021

2022

2023

Source Savills Research and Consultancy

savills.co.jp/research

6

AN ALTERNATIVE OPTION FOR
CORPORATESAs conveniently located and affordable spacein the C5W has been essentially unavailable,
tenants have been increasingly looking
outside of central Tokyo to find office space.
Shinagawa Ward appears to have been oneof the primary beneficiaries of this trend,with its market heating up considerably inrecent years. In addition to being a popular
residential district itself, Shinagawa isalso easily accessible from other popular
residential areas, such as Ota and Setagaya,
as well as Kawasaki and the residential
districts of Yokohama. Rents have picked up
substantially as a result, though the ward still
offers a substantial discount over the C5W(Graph 5). As companies adjust their officeleasing strategies in response to COVID-19,
this trend may accelerate.
Rents in the ward vary widely depending on
the submarket, with the highest passing rents
occurring around Meguro and Osaki stations.
Moreover, buildings around Shinagawa
Station, which – as noted previously - istechnically located in the Minato Ward, also
tend to have much higher rents. On the other
hand, the eastern and southern areas of theward, such as Tennozu Isle, generally see
lower rents. Office buildings in these areas
also tend to have larger floor plates and arethus considered Grade A office property.
Despite offering more space, the location ofthese buildings tends to bring down passing
rents, resulting in the ward’s Grade B rents
effectively exceeding those of Grade A (Graph
6). That said, the gap has largely closed
over the past year, as Grade A vacancy has
fallen to an airtight 0.1% while the Grade B
subsector has had some lingering vacancy.
Shinagawa has already seen much of its
large-scale office development pipeline
completed in 2018, with the addition of theOsaki Garden Tower, coming in at almost
55,000 tsubo of GFA. No additional largescale supply is expected until 2022, when
Sumitomo Realty & Development expects
to complete a 15,000 tsubo office building in
Kita-Shinagawa, while Japan Post is set tocomplete a 20,000 tsubo office in Gotanda.
Looking further ahead, 2025 will likely be
one of the largest office supply years onrecord for the Shinagawa area, as phase
I of the Shinagawa Development Project(developments around Takanawa Gateway
Station) is completed.
The Shinagawa Station area has a higher
premium than surrounding areas, particularly
Tennozu Isle and Shinagawa Seaside, but
provides excellent access to other parts ofTokyo as well as other regions of Japan. Indeed,
as of Q1/2020, average Grade A office rents
in the Shinagawa Station area landed around
JPY35,000 per tsubo per month, an estimatedShinagawa

GRAPH 8: Office Rents and Vacancy in Shinagawa Station, 2011 to Q1/2020
Grade A Vacancy (LHS)
Grade A Rent

18%

Grade B Vacancy (LHS)
Grade B Rent

40,00016%

35,000VACANCY

12%30,00010%

25,0008%
6%

20,0004%

JPY / TSUBO / MONTH

14%

15,000

2%

2011

2012

2013

2014

2015

2016

2017

2018

Q1

Q1

Q3

Q3

Q1

Q1

Q3

Q3

Q1

Q1

Q3

Q3

Q1

Q1

Q3

Q3

Q1

Q1

10,000Q30%2019 20

Source Savills Research and Consultancy

GRAPH 9: Office Rents and Vacancy in Higashi Shinagawa, 2011 to Q1/2020
Rent (LHS)

Vacancy (RHS)

20%

2011

2012

2013

2014

2015

2016

2017

2018

Q1

Q3

Q1

0%
Q3

0
Q1

2%
Q3

4%

2,000
Q1

4,000

Q3

6%

Q1

6,000

Q3

8%

Q1

10%

8,000

Q1

10,000

Q3

12%

Q3

14%

12,000Q1

14,000

Q1

16%

Q3

16,000

Q3

18%

Q1

18,000VACANCY RATE

RENT (JPY / TSUBO / MONTH)

20,0002019 20

Source Savills Research and Consultancy

83% premium over average rents in Tennozu.
Grade B rents in the area are more mild, coming
in at JPY24,000 per tsubo per month as of
Q1/2020. Grade A office vacancy in Shinagawa
Station has contracted to 0.3% and availability
remains severely limited. Grade B vacancy
briefly ticked up as a result of the relocation ofa mid-sized tenant in early 2019; however, thisspace was soon leased up and vacancy now sits
at an airtight 0.1%. Indeed, the area is likely toremain attractive for both office tenants andresidents for the foreseeable future.
HIGASHI SHINAGAWA (TENNOZU
ISLE & SHINAGAWA SEASIDE)
Given the lack of opportunities in more
centrally located areas, the Higashi
Shinagawa submarket in particular has been
a common target for cross-border office
investment in recent years. The submarket

itself can be roughly divided into the Tennozu
Isle and Shinagawa Seaside neighbourhoods,
both of which contain high-grade officebuildings.
Tennozu Isle has been developed since
the late 1980s and is packed with offices
offering large standard floor plates andvistas of the bay area. As transit access issomewhat limited, the area is not an ideal
base for employees conducting outside sales
activities. For this reason, companies tend
to house administrative functions on theisland. On the other hand, Tennozu Isle iseasily accessible from Haneda International
Airport via the Tokyo Monorail. As such,major tenants in the area include shipping
and transport companies, such as DHL, as
well as the headquarters of Japan Airlines
and the domestic travel company JTB. Evenso, area tenants are not necessarily limited

7

to transport firms. Panasonic, for example,
bases its Tokyo office in the area at Tokyo
Front Terrace.
The Shinagawa Seaside area, one stop to
the south of Tennozu Isle on the Rinkai Line,was developed as a high-grade office area
since the early 2000s. This large development
includes Hitachi Solutions Tower A and B,
which were completed in September 2002,
Rakuten Tower (Shinagawa Seaside North
Tower) and Shinagawa Seaside Towers Park,
South, East, and West in 2003 and 2004.
Though Rakuten relocated its headquarters
to Futako Tamagawa in the Setagaya Wardin 2014, the area offers relatively new,large-scale buildings, which have seen
strong demand from companies in needof a large floor plates. Major tenants in thearea include Mercedes Benz, which bases its
Japan headquarters in Shinagawa Seaside
Park Tower, as well as Hitachi Solutions, asubsidiary of Hitachi Group, which occupies
Hitachi Solutions Tower A and B.
The Higashi Shinagawa submarket sufferedfrom large vacancy several years ago after
companies moved to central Tokyo. However,vacant space has since been rapidly absorbed
and vacancy rates have tightened as largescale availability has now become extremely
limited in more central areas. Rents in thesubmarket have grown rapidly throughthe current upswing, now landing around
JPY19,000 per tsubo per month, with somebuildings achieving rents of over JPY20,000
per tsubo. This is still well below the averagefor the Shinagawa Ward, however, and a far
cry from passing rents around Shinagawa
Station.
Indeed, Higashi Shinagawa has one of thehighest discounts among office submarkets
in central Tokyo. On the other hand, railway
access is less convenient than in other areas.
The average employee of a company based
here may have to make multiple transfers
in order to commute. Additionally, despite
offering larger floorplates, office buildings in
the area - particularly those of Tennozu Isle are somewhat older than in other submarkets.
Prospective tenants would have to weigh thecost savings potential with these factors.
When central areas start to see moreavailability, tenants in Higashi Shinagawa may
move to more convenient central areas – likely
causing vacancy to increase earlier than inother submarkets. That said, as shown in Map 4
overleaf, some neighbourhoods in the area haveseen substantial increases in their residential
populations, perhaps making these offices
accessible to a larger set of the workforce andthereby improving the submarket’s staying
power going forward.

Shinagawa

MAP 4: Higashi Shinagawa Population Growth and Railway Access
Railway Lines
JR Keihin Tohoku

Pop Growth Since 2015
-100%

JR Yamanote

300%

JR Yokosuka
RinkaiTennozu Isle
(Tokyo Monorail)
Tennozu Isle
(Rinkai Line)

Toei/Tokyo Metro
Keikyu Main Line
Toei Asakusa
Tokyu Oimachi
Tokyu Ikegami
Tokyu Meguro
Metro Namboku
Tokyo Monorail

Shinagawa Seaside

Oikeibajo-Mae

OUTLOOK
During the latter stages of the latest property
upswing, Shinagawa quickly emerged as anaffordable, centrally located alternative forhouseholds and companies alike. Investors
have similarly been targeting assets in thearea in light of the bullish pricing at thecapital’s core. Trends in living and working
may be on the cusp of a major shift, however,and it ultimately remains to be seen how well
Shinagawa will fare under the “new normal”.
Regardless, the area is on a longterm growth track spurred by multiple
development projects. The opening of the
Takanawa Gateway Station in March 2020,
along with the surrounding developments
coming online over the next five years,
should make both Shinagawa Station andnearby Shinagawa Ward a more attractive
area for corporate tenants and residents. The
inauguration of the Maglev line in 2027 willfurther build on this momentum and solidify
the area’s position as a global gateway.

Source Shinagawa City, Statistics Bureau of Japan, Savills Research and Consultancy

For more information about this report, please contact us
Savills Japan

Savills Research

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Matthew D’Elia
Manager, Research &Consultancy, Japan+81 3 6777 5179
mdelia@savills.co.jp

Simon Smith
Senior Director
Asia Pacific+852 2842 4573
ssmith@savills.com.hk

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